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The share market fell from a nine-month high as Sydney’s coronavirus outbreak weighed on travel companies and insurer QBE announced a $1.5 billion loss.
The S&P/ASX 200 sank 36 points or 0.5 per cent by mid-session. Despite the setback, the market remained firmly on track for a seventh straight week of gains.
What’s driving the market
Positive leads from the US were overshadowed by market-unfriendly domestic issues. Insurers tumbled following a Covid-affected earnings update from QBE. Travel and tourism stocks sank as several states announced restrictions on NSW travellers, denting prospects for the holiday season. The dollar hit a 30-month high – a plus for importers, but a negative for Australia’s largely export-driven economy.
QBE slumped 9.1 per cent after the nation’s largest insurer said it expects to report a full-year statutory net loss after tax of $1.5 billion. The result was affected by extreme weather claims, the impact of Covid-19 and US write-downs.
Travel agents and airlines fell after NSW announced 10 new coronavirus cases since last night. The northern beaches cluster has grown to 28. While other states have kept their borders open so far, travellers will be required to quarantine upon arrival, throwing holiday plans into disarray.
“If we don’t get on top of it in the next few days, it could mean further restrictions down the track,” Premier Gladys Berejiklian warned.
The dollar rose overnight to its highest level since June 2018. The Aussie was last trading at 76.12 US cents. The local unit has been propelled higher by a collapse in the greenback after the US Federal Reserve pledged to keep pumping money into the economy until the jobs market returns to normal.
US stocks closed at fresh highs as investors focussed on the prospects for a stimulus deal with Covid-19 numbers at record levels and economic data underlining the need for action. The S&P 500 climbed 0.58 per cent.
“The prospect of an imminent US fiscal stimulus has trumped the underwhelming US economic news overnight and still very alarming Covid-19 infection and death statistics,” NAB Currency Strategist Rodrigo Catril wrote. “Investors continue to focus on the positive medium-term news from vaccine roll out and fiscal stimulus, overlooking the signs of a slowing economy and overwhelmed healthcare service.”
Going up
Yield stocks cushioned the market from a deeper loss following a drop in US bond yields overnight. Woolworths put on 1.9 per cent, Coles 0.8 per cent and Metcash 1 per cent.
The health sector resisted the profit headwind from the rising dollar. CSL edged up 0.9 per cent, ResMed 1.1 per cent and Cochlear 0.1 per cent.
Fortescue Metals was the best of the iron ore majors, rising 2.1 per cent as ore pushed back towards US$160 a tonne. BHP gained 0.5 per cent and Rio Tinto 0.7 per cent. Gold miner Newcrest rose 1.4 per cent after the falling greenback helped the yellow metal to a six-week high.
News of a 47 per cent increase in revenues over the last two months helped lift agribusiness Nufarm 3.9 per cent. CEO and MD Greg Hunt told today’s AGM the company’s trading performance had improved through reducing costs and improving margins.
Industrial explosives firm Incitec Pivot edged up 0.4 per cent after CEO and MD Jeanne Johns told today’s AGM the company was well positioned to benefit from a recovery in commodity prices.
Going down
Insurers sank in the wake of QBE’s earnings bombshell. IAG dropped 2.5 per cent to a five-week low. Suncorp fell 3 per cent. Mortgage insurer Gemworth dived 9 per cent after warning it expects to report a full-year loss and is unlikely to pay a dividend
Qantas swooned 3.9 per cent as investors assessed the demand implications of fresh travel restrictions. Webjet shed 4.9 per cent and Flight Centre 3.1 per cent. Corporate Travel Management gave up 1.8 per cent and Sydney Airport 1.7 per cent.
Vicinity Centres, which owns the Chatswood Chase mall on the north shore, fell 2.4 per cent. Retailer Premier Investments fell 1.6 per cent.
NAB Chair Philip Chronican told shareholders the Sydney outbreak showed how quickly the situation could change. He said the bank was well placed for the year ahead after raising capital. The share price sank 1.3 per cent during a soft morning for the banks. CBA shed 1.1 per cent, ANZ 0.2 per cent and Westpac 0.8 per cent.
Technology stocks succumbed to profit-taking after a golden week that lifted the sector to its highest level in at least 20 years. Afterpay slid 4.7 per cent, Computershare 1.9 per cent and Appen 0.5 per cent.
Other markets
A downbeat session on Asian markets saw China’s Shanghai Composite and Hong Kong’s Hang Seng fall 0.1 per cent. Japan’s Nikkei was unchanged.
US futures drifted lower. S&P 500 index futures declined two points or less than 0.1 per cent.
Oil slipped from a nine-month high. Brent crude eased 10 cents or 0.2 per cent to $US48.24 a barrel. Gold retreated $4.50 or 0.2 per cent to $US1,885.90 an ounce.
What’s hot today and what’s not
Hot today: South-east Asian casino operator Donaco (ASX:DNA) briefly hit pre-Covid levels on news of a return to positive earnings. The company reported unaudited pre-tax earnings of around US$1.3 million for October and November at its Cambodian and Vietnamese operations. The casinos were still running on a limited basis due to Covid restrictions. Shares surged from 5 cents to 9.2 cents before paring their gain to 22 per cent at 6.1 cents.
Not today: The hits keep coming for investors in biopharmaceutical company Mesoblast (ASX:MSB). Three days after announcing disappointing trial results for its treatment for chronic heart failure, the company announced high hopes for a treatment for the leading cause of death in Covid-19 patients had not been met. A trial on patients with acute respiratory distress syndrome will wrap up early because it failed to reach its primary endpoint. Mesoblast and its partner, Novartis, will analyse the results for meaningful clinical outcomes. This week’s double hit proved too much for many shareholders. Shares that traded above $4.50 on Monday hit $2.08 this morning before a partial recovery to $2.46.
